Question: Question 1 = 30 marks Question 2 2.1 uMgeni municipality is currently experiencing a severe shortage of potable water. The projected cashflow for a modular

Question 1 = 30 marks Question 2 2.1 uMgeni municipality is

Question 1 = 30 marks Question 2 2.1 uMgeni municipality is currently experiencing a severe shortage of potable water. The projected cashflow for a modular water treatment plant which the municipality is considering to purchase as an interim measure to improve the water supply situation, is displayed in the table below. 0 1 2 3 4 5 R- R520 000,00 R520 000,00 R 520 000,00 R520 000,00 R 520 000,00 Year Operational cost Yearly payment as per purchase agreement Final payment at end of 5 R- R 120 000,00 R 120 000,00 R 120 000,00 R 120 000,00 R 120 000,00 year period as per purchase agreement N/A N/A N/A N/A R 1 000 000,00 Determine the annual equivalent (AE) cost of acquiring and operating the treatment plant by using the following methods: (a) NPV option to calculate the AE in the constant Rand domain. (7) (b) Changing the cash flow to calculate the AE in the constant Rand domain. (7) (c) FV option to calculate the AE in the constant Rand domain. (7) Clearly show all your calculation steps for each of the methods. Use i = 9% and f = 4%. Question 2 = 21 marks

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